Proposed charitable distributions will not disqualify a charitable remainder unitrust

Plain-English summary

Two individuals created a charitable remainder unitrust that paid them a five-percent annual unitrust amount for life, then paid the survivor after the first death. After one creator died, the survivor continued to receive the full unitrust payment. The trustees and survivor proposed modifying the trust so the trustees could distribute some or all trust assets, currently or at the survivor's death, to permissible charitable remainder beneficiaries. Any attempted distribution to an ineligible organization would lapse, and a partial in-kind distribution would have to carry a fairly representative share of the available property's adjusted basis. Future unitrust payments after a lifetime charitable distribution would be calculated from the assets remaining at the start of the next taxable year. The IRS ruled that this modification would not disqualify the trust as a charitable remainder unitrust under Section 664(d)(2), but did not decide whether the trust otherwise qualified before or after the change.

Ruling snapshot

• Question: Will a modification allowing current or death-time distributions to permissible charitable remainder beneficiaries disqualify the trust as a charitable remainder unitrust?
• Outcome: approved (the proposed modification will not disqualify the trust under IRC Section 664(d)(2))
• Key authorities: IRC §§ 170(c), 664(d)(2), 2055(a), 2522(a); Treas. Reg. §§ 1.664-1, 1.664-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202448002                                              Third Party Communication: None
Release Date: 11/29/2024                                       Date of Communication: Not Applicable
Index Number: 664.00-00, 664.03-00,
              664.03-02                                        Person To Contact:
                                                               -----------------------, ID No. -----------------
------------------------------------------------------------   Telephone Number:
-----------------------                                        --------------------
------------------------------------------------------------   Refer Reply To:
---------------------------------                              CC:PSI:B03
-----------------------------                                  PLR-104141-24
--------------                                                 Date:
-------------------------                                      August 30, 2024
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LEGEND

Trust          =    -------------------------------------------------------------------
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                   -----------------------

A              =    -------------------------

B              =    ---------------------------------

Trustees       =    ------------------------------------------------------------------

Date 1         =    -----------------------

Date 2         =    --------------------

PLR-104141-24                                  2

Dear --------------------------:

      This letter responds to a letter dated February 21, 2024, and subsequent
correspondence, submitted on behalf of Trust by the authorized representative,
requesting a ruling that a proposed modification of Trust will not disqualify Trust as a
charitable remainder unitrust under § 664(d)(2) of the Internal Revenue Code and the
applicable regulations.

                                          FACTS

       The information submitted states that on Date 1, A and B created Trust with the
intention that Trust qualify as a fixed percentage charitable remainder unitrust under
§ 664(d)(2). Trust’s governing instrument requires Trustees of Trust to pay to A and B
each year during their lifetimes a unitrust amount equal to five percent of the net fair
market value of Trust’s assets, valued as of the first day of each taxable year of the trust
(unitrust amount). Upon the death of the first of A or B, Trustees are required to pay the
unitrust amount to the surviving beneficiary for their lifetime. B died on Date 2 and A
currently receives the entire unitrust amount. Upon the death of A, Trust shall
terminate, and the Trustees shall distribute the trust property to one or more charitable
organizations described in §§ 170(c), 2055(a), and 2522(a).

       Trustees, with A’s consent, propose to reform the terms of the governing
instrument to add that the Trustees may distribute currently and/or upon the death of A
all or a portion of the trust assets to permissible remainder beneficiaries. If an
organization is not a permissible remainder beneficiary, the distribution to that
organization shall lapse and the assets to be distributed to it shall remain instead in the
Trust. In the case of distribution of only a portion of the trust assets in kind, the adjusted
basis of the property distributed must be fairly representative of the adjusted basis of
the property available for payment on the date of payment. After any distribution to a
permissible remainder beneficiary during the lifetime of A, the sum of the unitrust
amount plus any deficiency payable shall thereafter be calculated based on the
remaining net fair market value of the trust assets on the first day of the Trust’s
succeeding taxable year.

                                  LAW AND ANALYSIS

       Section 664(d)(2) provides that a charitable remainder unitrust is a trust (A) from
which a fixed percentage (which is not less than five percent) of the net fair market of its
assets, valued annually, is to be paid, not less often than annually, to one or more
persons (at least one of which is not an organization described in § 170(c) and, in the
case of individuals, only to an individual who is living at the time of the creation of the
trust) for a term of years (not in excess of 20 years) or for the life or lives of such
individual or individuals, (B) from which no amount other than the payments described
in subparagraph (A) may be paid to or for the use of any person other than an
organization described in § 170(c), and (C) following the termination of the payments

PLR-104141-24                                 3

described in subparagraph (A), the remainder interest in the trust is to be transferred to,
or for the use of, an organization described in § 170(c) or is to be retained by the trust
for such use.

      Section 1.664-1(a)(1)(iii)(a) of the Income Tax Regulations provides that the term
“charitable remainder trust” means a trust with respect to which a deduction is allowable
under §§ 170, 2055, 2106, or 2522 and which meets the description of a charitable
remainder annuity trust (as described in § 1.664-2) or a charitable remainder unitrust
(as described in § 1.664-3).

      Section 1.664-3(a)(3)(ii) provides that a trust is not a charitable remainder
unitrust if any person has the power to alter the amount paid to any named person other
than an organization described in § 170(c) if such power would cause any person to be
treated as the owner of the trust, or any portion thereof, if subpart E, part 1, subchapter
J, chapter 1, subtitle A of the Code were applicable to such trust.

      Section 1.664-3(a)(4) provides that no amount other than the unitrust amount
may be paid to or for the use of any person other than an organization described in
§ 170(c). The governing instrument may provide that any amount other than the
unitrust amount shall be paid (or may be paid in the discretion of the trustee) to an
organization described in § 170(c) provided that, in the case of distributions in kind, the
adjusted basis of the property distributed is fairly representative of the adjusted basis of
the property available for payment on the date of payment. For example, the governing
instrument may provide that a portion of the trust assets may be distributed currently, or
upon the death of one or more recipients, to an organization described in § 170(c).

                                    CONCLUSION

      Based solely on the information submitted, we conclude that the proposed
modification of Trust discussed above will not disqualify Trust as a charitable remainder
unitrust under § 664(d)(2).

      Except as specifically set forth above, no opinion is expressed or implied
concerning the federal tax consequences of the facts described above under any other
provision of the Code, including whether Trust was or is a charitable remainder unitrust
under § 664(d)(2) of the Code.

     The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

      This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

PLR-104141-24                                               4


     In accordance with a power of attorney on file with this office, we are sending a
copy of this letter to Trust’s authorized representative.

                                              Sincerely,

                                              Associate Chief Counsel
                                              (Passthroughs & Special Industries)




                                          By:
                                                Richard T. Probst
                                                Senior Technician Reviewer, Branch 3
                                                Office of Associate Chief Counsel
                                                (Passthroughs & Special Industries)




Enclosure:
     Copy of this letter for § 6110 purposes

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